Bloomberg covers oral hearings on our motion for judgment in Transition tax case

By Aysha Bagchi

(Bloomberg Law) -- Oral arguments in a lawsuit challenging

the validity of rules implementing part of the 2017 tax overhaul

focused heavily on whether the plaintiffs are in the right

position to bring the challenge.

The questions were raised Monday during oral arguments at

the U.S. District Court for the District of Columbia, which has

been tasked with deciding whether Treasury violated multiple

statutes in the way it issued rules implementing tax code

Section 965‘s transition tax, passed through the 2017 law. The

tax treats otherwise-untaxed foreign earnings of U.S.

shareholders of certain foreign corporations as if the earnings

had been brought back to the U.S.

The case is among several legal battles tied to the 2017

tax overhaul.

Judge Amit P. Mehta asked whether the foreign corporation

that’s partly behind the lawsuit is actually subject to the

regulations, and wanted more clarity on the compliance

obligations for the corporation’s sole shareholder going

forward—signals that Mehta is wondering whether these are the

right kind of plaintiffs to be able to bring the case.

The case arose after U.S. citizen Monte Silver, who lives

and works in Israel, alleged that Treasury didn’t comply with

the Regulatory Flexibility Act, which requires federal agencies

to describe efforts to minimize any significant economic impact

on small entities or provide a certification—along with factual

support—that the rules won’t have that impact.

Silver also argued that Treasury didn’t abide by procedural

requirements spelled out in the Paperwork Reduction Act and the

Administrative Procedure Act.

Treasury has argued that it complied with both the RFA and

the PRA, including making a “reasonable and evidence-based

certification on economic impact.” It also said that Silver and

his business—which is a separate plaintiff in the case—don’t

have standing to bring the lawsuit because they don’t owe any

transition tax and “therefore have no future reporting

obligations under section 965 or the associated regulations.”

On Monday, Justice Department attorney Nishant Kumar argued

that Silver can’t bring his lawsuit because he doesn’t owe any

transition tax and isn’t subject to any reporting obligations

under Section 965 going forward.

Lawrence Marc Zell of Zell, Aron & Co., who represented

Silver and Monte Silver Ltd., argued that compliance costs

Silver already bore showed an actual injury had already occurred

that was a basis for him to bring his lawsuit.

The case is Silver v. IRS, D.D.C., No. 19-cv-0247, oral

arguments 3/15/21.